Latest In Legal Issues in Wholesale Distribution

NAW has released a legal advisory concerning the "Red Flags Rule," which the Federal Trade Commission will start to enforce Nov. 1, 2009. The rule requires creditors and financial institutions to conduct a risk assessment to determine if they have "covered accounts," which include consumer-type accounts or other accounts for which there is a reasonable risk of identify theft.

If so, the creditor must develop and implement a written Identify Theft Prevention Program that identifies and detects the relevant warning signs- or "red flags"- of identity theft. These may include, for example, unusual account activity, fraud alerts on a consumer report, or attempted use of suspicious account application documents. The program must ...

A jury in Indiana has found Breakers Unlimited, Noblesville, Ind., guilty of purchasing and selling counterfeit Square D circuit breakers. Schneider Electric - the parent company of Square D - filed the lawsuit in June 2007.

The amount of damages to be awarded and the scope of an injunction restricting Breakers Unlimited's continued involvement in the market where counterfeit circuit breakers are bought and sold have yet to be decided by the court.

"Distributors, electrical contractors and users need to be aware that there are hidden and potentially deadly hazards associated with counterfeit circuit breakers," said Jim Pauley, vice president of industry and government relations at Schneider Electric.

During the course of the lawsuit, Schneider Electric discovered that Breakers ...

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Schneider Electric won a recent court case against Breakers Unlimited, a Noblesville, IN-based business that purchased counterfeitSquare D products in 2005 and 2006 for resale. Schneider, the parent company of Square D,spoke with MDM in February 2008 about its long fight against counterfeits of its brand. This recent win by Square D is from just one of many lawsuits it has filed to protect its brand. An excerpt from the February 2008 MDM article:

"Counterfeiters had taken their own products and slapped fake Square D labels on them. Historically, counterfeits have been easy to detect. But the counterfeiters have grown more sophisticated, making it more difficult to name a ...

Bison Building Materials Ltd., Houston, TX, has filed for Chapter 11 Bankruptcy protection. The regional building materials supplier is the latest company to file for federal protection as a result of the struggling residential construction market in the U.S., following Stock Building Supply, ORCO Construction Supply, and Building Materials Holding Corp. which have filed within the last two months.

At its peak, Bison had about 1,350 employees with locations in six states; as of June 1, the company employed 556 people and had closed all operations outside of Texas. Sales have declined nearly 40% since 2006, to $179.1 million for fiscal year 2009 ended April 30.

A combination of real estate lease obligations and a tight credit market led to the decision to file for bankruptcy, said ...

Grocery wholesalers SuperValu Inc. and C&S Wholesale Grocers face a class action lawsuit alleging the two companies "conspired to allocate markets, customers and territories" in New England and the Midwest for the purpose of "fixing, raising, andmaintaining prices." DeLuca's Corp., a Boston grocer, filed the complaint on June 19.

The complaint contends that in 2003 SuperValu agreed to exit the New England market in exchange for C&S's agreement to refrain from competing in the Midwest. As a result, prices in both regions that had benefitted from competition between the two entities have been inflated and supply reduced.

SuperValu is the dominant wholesaler in the Midwest, with 2007 sales of more than $9 billion. C&S reported sales of more than $19 billion in 2007, and is the ...

Three years of precipitous declines in the residential construction market have taken their toll on distributors reliant on that sector. In the past three months, at least four distributors have filed for Chapter 11 bankruptcy protection, with two filing in mid-June.

On June 16, Building Materials Holding Corp., Boise, ID, filed for reorganization in the U.S. Bankruptcy Court in the District of Delaware. The building materials and construction services supplier has seen sales decline by more than 50 percent since 2006, from $3 billion annually to $1.3 billion in 2008.

The prior week, Western Tool Supply, Salem, OR, submitted a petition to the U.S. Bankruptcy Court in the District of Oregon. Sales for the distributor of tools, fasteners and related parts to contractors fell off 25 ...

Building Materials Holding Corporation, Boise, ID, a provider of building materials and construction services to professional residential builders and contractors, has filed for Chapter 11 bankruptcy protection after reaching an agreement with secured lenders on a restructuring plan.

Currently, there are no plans to close any additional facilities or reduce employment levels because of the filing. The company has closed several facilities in the past year, including the discontinuation of its wholly owned subsidiary SelectBuild Florida.

BMHC plans to continue to operate as usual while it implements the pre-negotiated restructuring plan. The distributor has received commitments for $80 million in debtor-in-possession financing for the process.

Under the proposed plan, BMHC's ...

Western Tool Supply, Salem, OR, filed for Ch. 11 bankruptcy protection on June 9, 2009, in Oregon Bankruptcy Court, attributing the company's tight position to an "acute shortage of operating cash, together with long-term leases that no longer reflected a market rate in a rapidly-declining commercial real estate market."

According to a June 10 filing, submitted to the court by President Kevin Kiker, the distributor of tools, fasteners and related parts to contractor customers has seen sales drop "precipitously" in 2009. Gross sales in 2007 were $67.5 million, and in 2008 fell to $50.8 million. No figure was provided for year-to-date sales in 2009.

Kiker founded Western Tool in February 1982, operating out of his garage in Jefferson, OR, according to the filing. In June 1982, he moved ...

Wholesale distribution executives should not underestimate the impact of changes to compensation programs on their work force. To manage this sensitive area in these difficult times, a smart, proactive approach is needed to effectively manage human capital.
 
With today's economic environment and turbulent times, it is no surprise that many companies have had to reshape their business as executives scramble to keep their companies afloat. Business leaders are challenged to find a balance between current finances and long-term strategy.
 
These business decisions also require a close look at the deployment of human resources, including difficult decisions regarding layoffs, restructuring compensation programs and pay practices, reductions in benefits, ...

Distributors across many sectors face a decision many never faced before: whether to implement layoffs. This article offers insight from two distributors on deciding who, when and how, as well as expert opinion on best practices in this difficult time.

Business is off about 40 percent from a year ago for one industrial distributor in the Midwest. As a result, for the first time in 22 years, the owner has had to lay off roughly a fifth of his small staff. It was one of the worst days of my life, he says.

The fear in employees' eyes as they walked to the conference room the day the layoffs were announced was palpable, he says. The process has taken an emotional toll on him and the remaining workers. For many distributors, a dramatic drop in demand in the ...

Bain & Company's just-released Management Tools & Trends survey says that 59 percent of executives interviewed globally plan to downsize in 2009; this is unsurprisingly up from 2008. Just 37 percent said they did not downsize in 2008 nor plan to in 2009.
 
An overview:


  • 71 percent think that government regulation of business will increase over the next five years.
    77 percent of North American respondents think that this will be the case


  • 71 percent feel that the current downturn will change consumer behaviors for at least three years 70 percent are very concerned about meeting growth targets in 2009.


  • 64 percent are planning for a downturn that will last at least ...
In doing research for an article on downsizing to be published in our next issue of MDM April 10, I came across this piece on the WARN Act from Fisher & Phillips LLP. MDM has tapped Fisher & Phillips as a source in the past for some of our articles on legal issues employers face.
 
As the author of this timely article points out: "When times are tough, the last thing a struggling business needs is a class-action lawsuit claiming the former employees are entitled to 60 days' additional pay under federal or state law."
 
The federal WARN Act (Worker Adjustment and Retraining Notification Act) governs how employers handle laying off large ...

Manufacturers have for the past couple of decades commonly offered pricing tiers to distributors, setting purchase quotas to qualify for price discounts and offered rebates based on growth and penetration. These rebates have been of great benefit to distributors - actually we buy our bottom lines - and have been the primary driver behind the growth of buying groups.

In some industries, rebates based on quantity purchases alone have been removed from the table. Pricing at the time of purchase, and special rebates or pre-bates to grow specific markets seem to be the emerging trends.

This means that many in distribution will have to rethink their purchasing strategy and start to look at shorter term growth and market penetration. Pre-bates are paid ...

The Melville, NY-based distributor of metalworking and MRO supplies, MSC Industrial Direct Co. Inc., is facing an audit by the General Services Administration related to government sales and compliance with the Trade Agreements Act. According to an SEC filing of its quarterly results, "the U.S. Department of Justice has advised the company that GSA OIG's audit identified non-compliant sales and potential liability arising therefrom." MSC reported however that it does not anticipate its potential liability, if any, to have "any material adverse effect on the company's consolidated financial position, results of operations or liquidity."
 
And that's all we know. MSC is one of many companies that do business with the government, which has stringent rules ...
The U.S. Customs and Border Protection (CBP) reported this week that the value of all seized counterfeit and pirated products for the year ended Sept. 30, 2008, was nearly $273 million, up 38% over 2007 - including a 43% increase in counterfeit electric products. The National Electrical Manufacturers Association (NEMA) reported the news on its Web site. Electrical products represented 8% of all seizures and ranked fifth among all product categories of counterfeit goods.
 
Footwear topped the list of counterfeit products, with handbags and apparel following. Counterfeit pharmaceuticals saw a dramatic increase in 2008 of 152% over 2007.
 
Last year I wrote a series of articles on the topic of counterfeits and private label risks; the most interesting fact I ...
Cleveland,OH-based The Lincoln Electric Co. and Lincoln Global, Inc., two subsidiaries of Lincoln Electric Holdings, Inc., have filed a lawsuit against Lisco, Inc., a Los Angeles-based company doing business as Rhino Welders and Phoenix Welding Supply Co., for patent, trademark, copyright and trade dress infringement and unfair competition. The lawsuit was filed in the U.S. District Court for the Central District of California.

Rhino Welders recently imported and started selling a family of Chinese-manufactured MIG welders through its distributor, Phoenix Welding Supply. Lincoln Electric alleges that the machines are copies of Lincoln's POWER MIG(R) line of welders and infringe Lincoln's intellectual property ...
McKesson Corp., San Francisco, CA, has reached an agreement to settle damage claims  of inflated prices on prescription drugs paid by private health-benefit plans and individuals. The company has agreed to pay $350 million. With the settlement, the drug distributor continues to deny the claims made in the lawsuit.
 
The terms are subject to final court approval.
 
The company will also record a reserve for outstanding and expected future claims by public entities, which is estimated to be $143 million.
 
As we have consistently stated, we believe the plaintiffs'allegations are without merit, and that McKesson adhered to all applicable laws,"said John H. Hammergren, CEO. "Yet when faced with the inherent uncertainty of this litigation, we determined ...